Core Viewpoint - Associated British Foods confirmed a decline in underlying sales at its Primark clothing business, reporting a 2.7% drop during the Christmas quarter [1] Company Summary - The Primark clothing business of Associated British Foods experienced a 2.7% decrease in underlying sales for the Christmas quarter [1]

Core Viewpoint - Associated British Foods (ABF) has reported weaker-than-expected performance at Primark, leading to a forecast of lower full-year adjusted operating profit and adjusted EPS compared to the previous year [4][6][3] Group Performance - Primark's total sales grew approximately 1% in the first quarter, with mixed performance across regions and a continuation of trends from the second half of fiscal 2025 [3][6] - In the UK, Primark achieved total sales growth of 3% and like-for-like growth of 1.7%, gaining market share despite a challenging retail environment [2][4] - The company expects H1 sales growth for Primark to be in the low single digits, impacted by heavy markdowns that have reduced profit margins [8][6] Regional Insights - In continental Europe, the consumer environment remains tough, with management noting that UK-style initiatives have not yet been fully rolled out but are now in progress [1][11] - The US retail environment is described as volatile, affecting sentiment and footfall, although new store openings contributed positively to sales growth [7][12] Food Division Performance - The food divisions are experiencing softness, particularly in the US, with challenges in cooking oils and bakery ingredients leading to a cautious outlook for grocery and ingredients segments [5][13] - ABF anticipates that full-year adjusted operating profit for grocery and ingredients will be moderately below last year due to worsening consumer weakness [13][14] Strategic Initiatives - To manage inventory levels, ABF has significantly increased markdowns, which have negatively impacted profitability, with an adjusted operating profit margin expected to be around 10% if current trends persist [9][6] - Management emphasized the focus on driving like-for-like sales and top-line growth rather than targeting specific margin levels [10] Market Dynamics - Primark executives noted broad weakness across European markets, with specific challenges in France, Italy, and Germany, while Spain showed only moderate performance [11][18] - The company is working on improving price perception and brand awareness, particularly in markets like France where it lacks scale [18] Digital and Structural Developments - ABF plans to enhance digital capabilities in Europe over time, including the rollout of click-and-collect services [18] - The review of group structure remains ongoing, with an update expected in April [19]

Core Insights - A significant portion of fashion executives (only 18 percent) viewed sustainability as a top-three risk for growth in 2022, with the 2026 report indicating that sustainability and ethical practices ranked seventh in factors influencing high-net-worth individuals' purchasing decisions from luxury brands [1] Group 1: Primark's Sustainability Efforts - Primark's interim CEO emphasized that sustainability remains a priority for the company, despite claims of reduced focus in other sectors [2] - The company aims for all clothing to be made from recycled or sustainably sourced materials by 2030, achieving 74 percent of clothing units sold containing such materials in the 2024-25 reporting year, a 12 percent increase from 2023 [3] - Of the 74 percent, 39 percent of Primark clothing now features recycled fibers, although comparisons to previous periods are not specified [4] Group 2: Primark Cares Strategy - The Primark Cares sustainability strategy was introduced in September 2021, building on the Ethical Trade program established 15 years ago [5] - Currently, 5 percent of items are designed for circularity, making them easier to recycle at end-of-life, with specific percentages for Jersey (20 percent) and denim (8 percent) [6]

Core Viewpoint - Associated British Foods (ABF) is considering a potential demerger of its food operations from its retail business, Primark, to enhance long-term governance and focus on maximizing value for both segments [6][9][25] Group 1: Financial Performance - ABF reported an operating profit of £1.48 billion for the year, with the retail segment, Primark, contributing £1.12 billion [4] - The group generated total sales of £19.46 billion, with Primark accounting for £9.5 billion (approximately 48%) of this total [5] - Primark's sales increased by 1% year-on-year, while like-for-like sales fell by 2%, indicating challenges in the UK and continental European markets [14] Group 2: Strategic Review and Potential Split - The management is conducting a strategic review that may lead to the separation of Primark from its food interests, which include grocery brands, sugar refining, and agri-food businesses [6][7] - George Weston, ABF's CEO, expressed hope to continue leading the food businesses if a split occurs, emphasizing the need for better scrutiny of the food segment [3][9] - Analysts have noted that there is compelling logic behind a potential split, although questions remain about the timing amid current trading conditions [12][13] Group 3: Food Business Outlook - ABF's food division has experienced mixed results, with revenue and operating profits from the grocery segment declining, while brands like Twinings and Ovaltine have shown consistent performance [16][21] - The company anticipates holding adjusted operating profits in its grocery and ingredients segments at similar levels to the previous year, with a cautious outlook for the sugar business [18][19] - Management sees potential for growth in its food assets, particularly in international grocery brands and the ingredients sector, with significant capital investment directed towards food [20][21][23] Group 4: Market Perception and Analyst Insights - Analysts have raised concerns about whether the consideration of a split is driven by strength or weakness in the business [13] - There is a belief that separating the food and retail segments could allow each to pursue more focused growth strategies, as the current conglomerate structure may not be optimal [24][25] - The potential split is viewed as a strategic move to enhance operational focus and capitalize on the strengths of each business segment [25]

Core Viewpoint - Shares in Associated British Foods (ABF) fell by 9.7% to £20.23 due to underwhelming sales forecasts from its Primark retail division [2] Group 1: Primark Performance - Primark's sales are expected to rise by 1% in the second half, with growth anticipated to be evenly distributed across Q3 and Q4 [2] - On a like-for-like basis, Primark's sales are projected to decline by 2% year-on-year, with a drop of 2.4% in Q3 and around 2% in Q4 [3] - UK and Irish sales have improved from the first half, attributed to strong product offerings, particularly in womenswear, and increased digital engagement [3] - The US market is described as "strong," while Europe is experiencing a more subdued consumer environment [3] - For the full year, Primark's total sales are expected to rise by 1%, with a store rollout program projected to drive sales growth of approximately 4% [3] Group 2: Grocery and Ingredients - Grocery revenues are expected to remain unchanged in the second half compared to the prior year, with growth in international brands offset by lower sales in Allied Bakeries and US oils [4] - Ingredients sales are also anticipated to be flat year-on-year, with good underlying growth in yeast and bakery ingredients, but impacted by currency devaluation and lower inflation in Argentina [5] Group 3: Sugar Segment - The Sugar segment is expected to record an adjusted operating loss of £40 million for the full year, with profits projected to improve in financial 2027 [6] - Sales and profits in the UK and Spain have significantly declined due to low European sugar prices and high beet costs [5][6] Group 4: Strategic Actions and Market Outlook - The CEO expressed satisfaction with the group's performance in a challenging environment marked by consumer caution, geopolitical uncertainty, and inflation [6] - Recent strategic actions include restructuring the Spanish sugar business, closing the Vivergo bioethanol plant, and acquiring Hovis Group to enhance breadmaking operations [6] - Analyst Mark Crouch noted that while Primark has historically thrived, current updates raise concerns about slowing sales growth in Europe and flat performance in the UK [7] - The acquisition of Hovis could provide a strategic lift, as it is less exposed to commodity swings and offers potential for scale-driven margin gains [7]